It’s been a tough week for the euro as it has continued to drop sharply against the dollar. Wednesday’s trading session kicked off with the euro hovering slightly above parity with the dollar. Given the euro’s poor performance lately, traders are concerned that U.S. inflation data will push the single currency to levels not seen in decades.
The greenback has remained solid in the last couple of weeks, extending its gains during the Asian trading session. Despite the 50 basis point increase from New Zealand and South Korean central banks, the New Zealand dollar and South Korea’s won have remained largely unchanged.
The euro remains on the defensive and is trading at $1.0036. It has dropped by over 12% this year and registered a new 20-year low on Tuesday as the war in Ukraine has caused an energy crisis in the region, affecting the continent’s economic growth outlook. The euro dropped to as low as $1.00005 on the most popular Electronic Broking Services dealing platform and plunged to as low as $1 on Reuters dealing overnight.
Analysts are also predicting that the euro could fall further, especially if increasing U.S. consumer prices continue to force the Fed to increase rates.
Experts are also predicting that U.S inflation could increase to 8.8% year on year. And should that be the case, it will further reinforce Fed’s aggressive monetary policy, further aiding the dollar.
While the euro hit parity with the Swiss franc last month, it has continued to drop further, and experts foresee it dropping beneath the 200-day moving average against the pound.
It is important to add that the weakness in the euro and yen has helped push the U.S. Dollar Index higher. This week, the dollar index comfortably reached a two-decade high of 108.560. It is now trading at 108.18 and showing signs of rallying further should inflation data come in as expected.
Meanwhile, the Japanese yen has continued to take a beating this year as the BOJ has refused to make any changes to its loose monetary policy. On Wednesday, the yen came under pressure at 137.05 per dollar after falling to its lowest level since 1998 on Monday.